Li Keqiang
and
Xi Jinping
shook hands warmly at Beijing’s Great Hall of the People on Friday.

The pair were marking the ceremonial “election" of Li as China’s new premier just a day after Xi officially became president.

But while they officially took up their positions this week their fate was actually decided more than five years ago, when they were rivals.

China’s leaders are chosen years in advance to ensure a smooth transition and at the time both were vying for the top job.

Li, a protege of former president
Hu Jintao
, lost out to Xi, a “princeling" and member of the country’s political elite, in the factional power struggle that preceded the 2007 National People’s Congress. In China’s opaque political system it’s hard to tell whether their rivalry still lingers.

But for China’s sake, and that of the global economy, it is hoped the two will work together to overcome significant political and economic challenges in the next decade.

After three decades of double-digit growth, China’s economy is at a crossroads. With an uncertain outlook for the global economy hampering exporters, the government is pinning its hopes on a pick-up in domestic spending to drive the economy.

One of the new leadership team’s most immediate challenges will be how to curtail significant home price rises across some of its biggest cities without sapping the momentum from the recent economic rebound.

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Real estate and construction make up a fifth of China’s economy and it’s feared that property restrictions could trigger a slowdown. The government has already flagged a 20 per cent capital gains tax in some cities but few details have been released.

At the same time, Li has said repeatedly the country’s urbanisation will drive growth because of the greater demand for infrastructure and rising incomes. China expects 400 million people to move to its cities in the next decade, driving long-term demand for Australia’s commodities.

Li is regarded as a reformer but he is surrounded by conservatives on the seven-member Politburo Standing Committee, which sets the country’s policy agenda.

“He’s a lonely reformer among the decision-makers," said Yang Zhaohui, a political scientist at Peking University. “Over the next five years the conservatives will still control the situation."

However, there are reformers rising through the ranks. Former Guangdong party chief
Wang Yang
, who introduced some political reforms in that province, is expected to be named vice-premier in charge of agriculture.
Li Yuanchao
was unexpectedly named as vice-president, despite not being a current member of the standing committee. And
Hu Chunhua
, current Guangdong party chief and the most likely candidate to succeed Xi as president in a decade’s time, joined the 25-member Politburo. All three are expected to make the standing committee next time, around 2017.